How Much Money Do You Really Need to Retire?


Individuals approaching retirement age are entering both an exciting and stressful time of life as they figure out when they can afford to retire, as well as what they would like to do in retirement.

Of course, the big question everyone has is, “How much money do I actually need to retire?” It’s clear that many people are finding themselves struggling to answer this question, as a growing number of people are retiring with debt and have difficulty managing it. The Federal Reserve reports the combined debt of those aged 65-74 is rising faster than any other demographic. Furthermore, individuals aged 65 and older are the fastest growing demographic for bankruptcy filings. What makes the question of “How much money?” so difficult to answer is the fact that there is no Magic Number. Most financial experts recommend replacing 70-85% of preretirement income to sustain the same standard of living. However, this is a general rule of thumb and not a strict instruction.

Lifestyle, existing debt, total lifespan, possible health and medical issues, providing financial assistance to an adult child – these are all factors that significantly affect how much money you’ll need in retirement. It is important to do your research and plan for your retirement ahead of time. This will help to avoid the common pitfall of just not having enough money to go around.

No matter what stage of retirement planning you are at, consider the following when determining how much money you’ll need to retire comfortably.

Plan for Your Wants and Needs

Since retirement looks different for everyone, it is important to think about what you see your retirement looking like. Plans to travel, downsize, relocate, maintain a side hustle, or continue to support adult children – these are all choices that will affect what your lifestyle in retirement will be and how much money you’ll need to support that lifestyle.

If you are younger, anticipating your wants and needs during retirement will be tricky; for now, best to just ensure you are taking advantage of things like a 401(K)-matching program from your employer so that you are prepared later on for the lifestyle choices you make. However, as you get older, your dreams for retirement will become clearer.

As you enter your 40s and 50s, consider what kind of life you envision for your retired-self. Begin putting together a budget to determine how much money you’ll need to support this life. Consider using an online tool like Budget Jewel to make it easier to keep track of expenses. Don’t forget to include things like increased healthcare costs, taxes on your retirement savings, and moving costs if you plan to downsize or relocate.

Determine Where Your Money Will Come From

Over the course of your career, you will have accumulated wealth and various assets for your retirement. These may be retirement accounts, investments, mutual funds and/or Social Security. Evaluate your assets to determine how much income you can expect to generate monthly in retirement. This will determine whether you may need to work longer than anticipated. Because of fears of the disappearance of public sector pension plans and dwindling Social Security, younger workers should consider contributing to private retirement plans like an IRA, 401(K) or Roth IRA.

As a young person, retirement may be an abstract idea, but time is on your side. Due to compound interest, you can contribute less money over a longer period of time. As a result, you’ll accumulate more money by the time you reach retirement age than if you contribute more money later in your career over a shorter period of time. Regardless of your age, aim to save as much as possible now. This will allow you to have a large nest egg when retirement comes.

Know Your Retirement Options

Do you know the difference between retirement accounts? It’s likely you are contributing money to one or more of the following: a pension, IRA, 401(K), or Roth IRA. A pension is a public sector employer-sponsored benefit plan where the employer makes automatic contributions to the employee’s pension fund throughout the employee’s career. If your employer offers a 401(k) retirement option, you may be able to automate your contribution through payroll deductions. Employers may also match what you contribute each month. An IRA can be set up as a retirement account by anyone regardless of their employer and is solely contributed and managed by the account creator. While a Roth IRA has eligibility requirements, it is a good option for a young person or anyone who would like to pay taxes upfront on your retirement savings contributions to avoid paying higher taxes in the future.

Know When to Take Social Security

Figuring out when to take Social Security is no easy task. No one knows for certain how long they will live. So the best way to determine when it’s in your best interest to claim is to look at the average life expectancy and your monthly retirement income, retirement age, and goals in retirement. When you do collect Social Security, consider that when you decide to take it will determine how much money you’ll receive each month. If you claim at 62 you receive 75% of the monthly benefit (compared to if you waited until the full retirement age of 65, 66 or 67 depending on the year you were born). If you wait until after full retirement age, you’ll receive an additional 8% every year past full retirement age.

Retirement is the reward for a lifetime of work, so make sure you prepare for it as best as you can to have the brightest golden years possible! Be careful and smart with the decisions you make regarding your retirement, even before you retire. And don’t forget, you can start planning for retirement at any stage of life (but the sooner, the better)!

What are you doing to ensure you have a financially fulfilling retirement? Leave your comments below!

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